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Hormel Still Tasty

The great thing about writing for The Motley Fool is that you learn stuff. Take the case of Hormel (NYSE: HRL) and its recent acquisition of Valley Fresh. This small deal ($78 million) will make Hormel the hands-down leader in the canned, ready-to-eat chicken market. I didn't even know there was a canned, ready-to-eat chicken market.

Embalmed bird aside, there's still plenty to like about Hormel. Because it's more a user of protein as opposed to a producer of it, it can actually benefit from the oversupply of protein that has sent the prices of chicken, beef, and hogs down a fair bit. What's more, whether you're talking about SPAM, Dinty Moore, or Hormel Chili, you're talking about manly man food that appeals to a wide swath of consumers as opposed to size 0/2 fashionistas. In fact, I dare you to imagine a size 0 fashionista eating a bowl of Hormel chili and not laugh.

The business itself is doing all right. Sales for the second quarter were up more than 4%, though organic volumes rose only 1% (that is, volume excluding acquisitions, not organic meat products). Margins improved and the company posted double-digit growth in operating income. It's also worth noting that the company continues to experience above-average growth in the higher-margin grocery product category.

The downside to Hormel is still the same as it has been for a while. Tyson (NYSE: TSN) , Pilgrim's Pride (NYSE: PPC) , and Gold Kist (Nasdaq: GKIS) all got clocked (before staging a strong rally recently). Hormel and Smithfield (NYSE: SFD) didn't. But I suppose that's not bad news in a roundabout way: You can't really say that Tyson et al. are dirt cheap anymore, so perhaps it's less objectionable to pay up for Hormel's quality.

While there are always risks in a business sensitive to things like agricultural inputs, Hormel has more than stood the test of time. And there has seldom been a prolonged downdraft in the stock price. So while you might want to wait for an infrequent drop in the stock to buy shares, just remember you could be waiting a while.

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